5 Stocks Insiders Love Right Now

WINDERMERE, Fla. (Stockpickr) -- Corporate insiders sell their own companies' stock for a number of reasons.

They might need the cash for a big personal purchase such as a new house or yacht, or they might need the cash to fund a charity. Sometimes they sell as part of a planned selling program that they have put in place for diversification purposes, which allows them to sell stock in stages instead of selling all at one price.

Other times they sell because they think their stock is overvalued and the risk/reward is no longer attractive. Some even dump their own stock because they have inside knowledge that a competitor is eating their lunch and stealing market share.

But insiders usually buy their own shares for one reason: They think the stock is a bargain and has tremendous upside.

The key word in that last statement is "think." Just because a corporate insider thinks his or her stock is going to trade higher, that doesn't mean it will play out that way. Insiders can have all the conviction in the world that their stock is a buy, but if the market doesn't agree with them, the stock could end up going nowhere. Also, I say "usually" because sometimes insiders are loaned money by the company to buy their own stock. Those loans are often sweetheart deals and shouldn't be viewed as organic insider buying.

At the end of the day, its large institutional money managers running big mutual funds and hedge funds that drive stock prices, not insiders. That said, many of these savvy stock operators will follow insider buying activity when they agree with the insider that the stock is undervalued and has upside potential. This is why it's so important to always be monitoring insider activity, but it's twice as important to make sure the trend of the stock coincides with the insider buying.

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One airline stock that insiders are jumping into here is Delta Air Lines ( DAL - Get Report), which provides scheduled air transportation for passengers and cargo throughout the U.S. and around the world. The company's route network gives it a presence in every domestic and international market. Insiders are buying this stock into some modest strength here, since shares are up over 15% so far in 2012.

Delta Air Lines has a market cap of $7.89 billion and an enterprise value of $17.46 billion. This stock trades at a cheap valuation, with a trailing price-to-earnings of 8.53 and a forward price-to-earnings of 3.23. Its estimated growth rate for this year is 60.3%, and for next year it's pegged at 27.9%. This is far from a cash-rich company, since the total cash position on its balance sheet is $3.50 billion, and its total debt is a whopping $13.08 billion.

From a technical perspective, DAL is currently trading below both its 50-day and 200-day moving averages, which is bearish. The bears hammered this stock off its May high of $12.25 to its recent low of $9.08 a share. Since that sharp drop, shares of DAL have started to trend sideways between $9.08 and $9.77 a share. Traders should now watch for a move outside of that sideways trading pattern, since it will likely setup DAL for its next major trend.

If you're bullish on DAL, then I would look for long-biased trades once this stock clears both its 200-day moving average at $9.73, and some near-term overhead resistance at $9.77 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 13,394,800 shares.

On the flipside, I would avoid DAL or look for short-biased trades if this stock fails to maintain a trend above $9.73 to $9.77 a share, and then takes out some major near-term support levels at $9.14 to $9.08 a share with high volume.

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A stock in the oil and gas operations complex that insiders are loading up on here is Halcon Resources ( HK - Get Report), an independent energy company engaged in the acquisition, production, exploration and development of onshore oil and natural gas properties in the U.S. Insiders are sniffing out some deep value here, since this stock has plunged 80% so far in 2012.

Halcon Resources has a market cap of $1.58 billion and an enterprise value of $1.64 billion. This stock trades at a reasonable valuation, with a forward price-to-earnings of 15.87. Its estimated growth rate for the next quarter is -25%, and for this year it's pegged at -113.6%. This is not a cash-rich company, since the total cash position on its balance sheet is $219.21 million and its total debt is $242.58 million.

From a technical perspective, HK is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock recently ran into some heavy overhead resistance near $11 a share, and then subsequently crashed to its recent low of $6.26 a share. During that large move lower, shares of HK were consistently making lower highs and lower lows, which is bearish technical price action. That said, HK has started to rebound off that $6.26 low with shares now trading near $7.50 a share.

If you're in the bull camp on HK, then I would look for long-biased trades once HK triggers a break out above some near-term overhead resistance at $7.83 a share, and then once it takes out both its 200-day at $8.33 and its 50-day at $8.96 with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 1,515,210 shares.

I would simply avoid HK entirely or look for short-biased trades if it fails to clear those resistance levels soon, and then drops $7.25 a share with heavy volume. One could also look for short-biased trades if HK re-tests but then fails to take out its 200-day or 50-day moving averages.

Vitesse Semiconductor

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One semiconductor player that insiders are snapping up here is Vitesse Semiconductor ( VTSS), a supplier of integrated circuits (ICs) that are utilized primarily by manufacturers of networking systems for carrier and enterprise networking applications. Insiders are buying this stock into some modest weakness, since the shares are off by around 9% so far in 2012.

Vitesse Semiconductor has a market cap of $57 million and an enterprise value of $93 million. This stock trades at a reasonable valuation, with a forward price-to-earnings of 19. Its estimated growth rate for this year is 76%, and for next year it's pegged at 209.1%. This is not a cash-rich company, since the total cash position on its balance sheet is $19.21 million and its total debt is $57.26 million.

From a technical perspective, VTSS is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock has been downtrending badly for the last six months, with shares dropping from over $4 to a recent low of $1.91 a share. During that downtrend, shares of VTSS have consistently made lower highs and lower lows, which is bearish technical price action.

If you're bullish on VTSS, then I would look for long-biased trades once this stock manages to clear its 50-day moving average of $2.39 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 173,422 shares. If we get a sustained move or close above its 50-day soon, then look to add to any long positions once VTSS takes out its 200-day moving average of $2.84 a share with heavy volume.

Quest Diagnostics

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Another stock that insiders find attractive here is health care facilities player Quest Diagnostics ( DGX - Get Report), a provider of diagnostic testing, information and services, providing insights that enable patients and physicians to make healthcare decisions. This stock hasn't done much so far in 2012, with shares up just 3%.

Quest Diagnostics has a market cap of $9.52 billion and an enterprise value of $13.08 billion. This stock trades at a fair valuation, with a trailing price-to-earnings of 13.76 and a forward price-to-earnings of 12.06. Its estimated growth rate for this year is 2.2%, and for next year it's pegged at 9%. This is not a cash-rich company, since the total cash position on its balance sheet is $173.74 million and its total debt is $3.82 billion. This stock sports a dividend yield of 1.2%.

From a technical perspective, DGX is currently trading above both its 50-day and 200-day moving averages, which is bullish. This stock recently gapped down and continued to slide lower from over $63 to $56.84 a share. Following that move lower, shares of DGX managed to hold near its 200-day moving average, and it has now started to uptrend again. That move has pushed the stock within range of triggering a near-term breakout trade.

If you're in the bull camp on DGX, then I would look for long-biased trades once this stock manages to break out above some near-term overhead resistance at $59.83 with high volume. Look for a sustained move or close above that level with volume that's near or above its three-month average action of 1,139.120 shares.

On the flipside, I would avoid DGX or look for short-biased trades if it fails to trigger or hold that breakout, and then if it drops below some near-term support at $56.84 a share with heavy volume.

Omnicare

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The last name to consider with some large insider buying is drug wholesale player Omnicare ( OCR). This company provides pharmaceuticals and related pharmacy and ancillary services to long-term care facilities, as well as chronic care facilities and other settings. Insiders are buying this stock into some modest weakness, since shares are off by 6.6% so far in 2012.

Omnicare has a market cap of $3.57 billion and an enterprise value of $5.04 billion. This stock trades at fair valuation, with a trailing price-to-earnings of 27.48 and a forward price-to-earnings of 9.26. Its estimated growth rate for this year is 52.6%, and for next year it's pegged at 6.5%. This is not a cash-rich company, since the total cash position on its balance sheet is $564.48 million and its total debt is $2.05 billion. This stock sports a dividend yield of 0.90%.

From a technical perspective, OCR is currently trading above its 50-day moving average and below its 200-day moving average, which is neutral trendwise. This stock has been trading range bound for the last two months, with shares moving between $34 and around $29 a share. This stock just started to move back above its 50-day moving average at $31.33, and it's now trading within range of taking out its 200-day moving average of $32.70 a share.

If you're bullish on OCR, then I would look for long-biased trades once this stock takes out its 200-day moving average of $32.70 a share with high volume. Look for a sustained move or close above that level with volume that's near or above its three-month average volume of 1,407,380 shares. If we get that move, then look to add to any long positions once OCR takes out some near-term overhead resistance at $34.02 a share with strong volume.

I would simply avoid OCR or look for short-biased trades if it fails to clear those levels soon, and then takes out its 50-day moving average of $31.33 with heavy volume. If we get that action, then OCR could easily re-test and possibly take out its recent lows of $29.76 to $29.24 a share.

To see more stocks with notable insider buying like Theravance (THRX), Zeltiq Aesthetics (ZLTQ) and Postrock Energy (PSTR), check out the Stocks With Big Insider Buying portfolio on Stockpickr.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.

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